Christin Tuxen, chief analyst at Danske Bank, points out that the central bank credibility continues to be challenged with notably Euro area (market-based) inflation expectations taking a nose-dive yesterday.
“The 5y5y inflation swap rate declined to 1.18%, setting another all-time low print. While there was no particular catalyst for the drop yesterday, such moves should be much concerning to the ECB: this essentially suggests that markets do not believe in the narrative Draghi conveyed last week at the press conference that ECB has the necessary tools to deal with a downturn.”
“Draghi’s welcome address at the Sintra conference next week will be closely watched for any clues about future ECB policy actions.”
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